Taxpayers First Pay To Build, Then Lease Luxury Homes

Taxpayers foot the bill to lease condos and townhomes initially built with tax-increment financing dollars.

House photos by Chicago Sun-Times. 

Richard M. DaleyUnder Mayor Richard M. Daley, the city of Chicago chipped in $19 million to build Sky55, a 40-story apartment building that was part of City Hall’s plan to redevelop the South Loop neighborhood where Daley lived.

Now, the city’s taxpayers are paying to help fill the privately owned building.

They’re helping to cover the rent for people in the Chicago Housing Authority’s housing choice voucher program, formerly known as Section 8, to lease 28 apartments in the tower.

Four of those apartments, each with sweeping skyline views, are leased by CHA voucher-holders at rents of $2,730 to $3,199 a month.

Taxpayers pick up the entire tab for two of those apartments because, the CHA says, the tenants have no income. Public funds also cover more than half the rent payments on the other two units.

The other two dozen CHA households at Sky55 have more modest apartments, with monthly rents between $666 and $801. Most of these tenants, primarily single women, pay part of the rent to occupy one of 82 units there, out of 411 total, designated for low-income people, records show.

These units were set aside as affordable housing under the developer’s deal with the Daley administration for the $19 million in tax-increment financing — property taxes diverted from police, fire, schools and other government services to boost economic development.

Altogether, FC Central Station, the developer of Sky55, collects $21,078 a month from the CHA for the 28 apartments.

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Last year, the CHA spent a total of $49,176 a month to lease 38 homes, condos or apartments in Sky55 and other developments the city has subsidized with TIF money to spur gentrification, according to the findings of a Chicago Sun-Times and Better Government Association investigation that will, over the coming months, examine the effects of the city's massive "Plan for Transformation” — one of the most ambitious efforts nationwide to shift low-income residents out of crime-ridden, high-rise public housing projects like Cabrini-Green and the Robert Taylor Homes.

For people who have been unable to sell homes they bought in taxpayer-subsidized neighborhoods, the CHA’s voucher program has been a financial boon — particularly when the authority has been willing to pay “exception rents.”

The CHA says it does so — agreeing to rents that are as much as triple what it normally pays — to help low-income tenants who choose to live in expensive apartments and homes in what the agency calls “opportunity areas.” Those neighborhoods traditionally haven’t welcomed people with public housing subsidies.

As long as voucher-holders choose homes that meet the program's criteria, "They can move in there," says Molly Sullivan, a CHA spokeswoman. "It's not in the CHA's purview to see why the landlord is renting."

>> Complete coverage | Beyond the Rubble: Life After the CHA Upheaval

The TIF-subsidized developments include:

  • Central Station, a mixed-use development begun in 1990 by developer Gerald Fogelson, which has received more than $30 million in TIF money — including the $19 million for Sky55 — to build streets and other infrastructure. The 72-acre project at South Michigan Avenue and Roosevelt Road includes the townhouse where Daley lived, which he sold to his daughter and her husband.

In addition to the 28 apartments in Sky55, the CHA covers part or all of the rent for three other homes built in the city’s Near South TIF district.

That includes a townhouse in Central Station that Chaoshan Lai bought in 2006 for $935,000. The townhouse in the 1400 block of South Prairie has three bedrooms, three and a half baths and a library. Lai tried to sell it, but, after failing to find a buyer, he leased it out in 2013 through the CHA’s voucher program.

The CHA pays him $3,911 a month to rent to a household of four that’s headed by a woman who doesn’t pay any of the rent herself because, the agency says, she has no income. It won’t identify voucher-holders, though it did name its landlords.

Lai has collected more than $100,000 in rent from the CHA over the past two and a half years.

But that deal will come to an end soon. That’s because the CHA has decided it will no longer spend so much on rent for Lai’s property and others with “exception rents.” So his tenant will have to move out later this year.

  • University Village, a 900-home development that led to the demolition of the old Maxwell Street market. The development has gotten $31 million in city TIF funds for streets, sewers, sidewalks and subsidies for certain “affordable housing” buyers — some who subsequently flipped the properties at a profit, records show.

For the past two years, the CHA has paid $2,479 a month to Joseph Lee, who moved to Park Ridge but couldn’t find anyone to buy his University Village townhouse on 15th Street just east of Halsted. Lee — who did not receive any taxpayer-funded subsidies to buy his home — also gets $721 toward the rent from his tenants, a family of five.

  • Eastgate Village, another Fogelson development, which was built on a Mercy Hospital parking lot. Daley created a TIF district so all of the property taxes paid by Eastgate’s homeowners — as much as $60 million in all — would be diverted to the hospital for major repairs.

But when the housing market imploded in the late 2000s, the project ran into trouble. The developers unloaded many of the units at cut-rate prices.

Six Eastgate Village homeowners have been leasing their homes under the housing choice voucher program for between $2,300 and $3,406 a month. The cheapest home was sold last fall, forcing the voucher-holder to move.

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Eastgate Village (above) was developed with taxpayer dollars. Six homeowners now lease to public housing voucher holders for between $2,300 and $3,406 a month. Top photo: The city of Chicago paid $19 million to help develop Sky55.

The most expensive rent in Eastgate Village under the CHA program goes to Garrison Hearst, a retired running back for the San Francisco 49ers and other NFL teams. He leases his three-story townhouse to a family of four.

Hearst and his wife live in Georgia, but she has family ties to Chicago. He bought the townhome for $565,000 in 2008 and tried to sell it for $499,000 in 2011.

Hearst eventually slashed the asking price to $395,000, real estate listings show, but still couldn’t sell it. He put the townhome on the rental market, initially asking for $3,900 a month, according to real estate listings.

He says he was contacted by a real estate agent who had a prospective tenant with a voucher.

The CHA agreed to $3,406 a month in rent — with the tenant paying $884 and taxpayers picking up the remaining $2,522.

The head of the household had lived in a public housing high-rise when the CHA began its massive “Plan for Transformation” effort in 2000, tearing down housing projects and adding vouchers.

Along with other CHA tenants, she was offered a “right of return” to public housing at any point in the future.

She and her husband ended up buying a condo elsewhere on the South Side in 2008. But it went into foreclosure and was sold at auction in September 2013, records show. Because of the right of return, she was able to bypass the normal waiting list — with about 50,000 names on it — and obtained a voucher.

She, her husband and the two others in her household, including a child under 6, moved in to Hearst’s home in July 2014.


See Related Article: Chicago's Public Housing Divide


Around the corner from Hearst’s townhouse, the CHA is spending $3,070 a month to lease a townhouse that Dr. Judy Sun had bought for $678,000 in 2007.

Sun moved to Hinsdale but couldn’t sell the South Side condo because, she says, “The market was terrible.”

Her tenant found the townhome two years ago by searching online on Zillow.com and was chosen over other applicants, according to Sun’s property manager.

Sun collects $30 a month from the woman who lives there with three other people. Taxpayers cover the rest of the $3,100-a-month rent.

Another Eastgate Village homeowner, Kenneth W. Vaughan, couldn’t find a buyer for his townhouse either when he moved to Texas a few years ago. Vaughan decided to rent the two-bedroom, three-bath home he’d bought in 2007 for $526,500.

“My property was worth 40 percent less than I paid for it,” Vaughan says. “I’m still losing money on it. I hired a realty group to find a tenant. They had two prospective tenants. I was going to get a little more out of the CHA tenant, so I went with her.”

The CHA pays Vaughan $2,513 to lease to a single woman. She doesn’t pay anything toward the rent.

But the woman is going to have to move because Vaughan says the CHA is cutting the rents it will pay in opportunity areas.

Data Reporting Lab editor Darnell Little contributed to this report.

About the Author

Brett Chase

Brett Chase investigates waste, fraud and corruption in a number of areas, including the environment, housing, health care and transportation. A former reporter and editor for Crain's Chicago Business, the Milwaukee Journal Sentinel and Bloomberg News, Chase has covered government and business for more than 20 years.